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The Cayman Islands can expect a decision on its inclusion in the EU’s AIFMD (Alternative Investment Fund Managers Directive) Passport scheme by June, which, if granted, would secure future access to European investors for funds either managed or registered in Cayman. The funds industry is keenly awaiting a resolution to this long drawn out regulatory change, with most US managers currently avoiding Europe altogether or relying on reverse solicitation – where the investor contacts them – leading to uncertainty over exactly what constitutes marketing in the various EU countries.

The European Commission recently published a letter written to the European Securities and Markets Authority (ESMA), inviting ESMA to complete the assessment of the second wave of six non-EU jurisdictions, which includes Cayman, by 30 June 2016.

From a US fund manager’s perspective, the change in law in Cayman did not, unfortunately, provide relief for managers currently relying on reverse solicitation to distribute funds in Europe, which from what she hears in the industry is the “vast, vast majority”.

Under reverse solicitation, the manager is not required to be registered with any European regulator because the investor has sought participation with the fund manager, rather than the other way around. While this route means fund managers avoid the complexity of the various national private placement regimes in Europe – which is the other way non-EU funds can still be sold in Europe until the AIFMD Passport takes over – reverse solicitation can be problematic because the rules differ quite significantly between different countries.

Managers could fall foul of regulations and be seen as actively marketing by, for example, having information published on a website, speaking at an industry conference or leaving a client a business card, so they need to be extremely cautious.

The Cayman Islands and other so-called ‘third countries’, or non-EU jurisdictions, had initially expected a decision on the EU Passport last summer, however ESMA’s high workload in assessing the regulatory frameworks of the first group of non-EU fund centres being examined, meant they still had to finish assessing Hong Kong, Singapore and the US, having granted access to Jersey, Guernsey and Switzerland.

This has left the fund industry in the second group of so-called ‘third countries’, Cayman, Bermuda, Australia, Japan, Canada and the Isle of Man, waiting for a further year to discover their fate in terms of their ability to market to one of the biggest investor bases in the world.

The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.